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tv   [untitled]    February 2, 2012 8:00pm-8:30pm EST

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certainly tremendous -- the biggest drop in the country, but still way too high. i wonder if you'll talk about the importance of creating jobs and the impact on the deficit and the economy because what you have been talking about on the demand side, that's jobs. that's people having money in their pocket. so they can buy things, care for their families. and it's so critical i think that we focus immediately on jobs and the economy, in we're going to get out of this deficit hole. if you could speak more to that. >> so senator, stronger economic performance is very good for the federal budget. mostly because it increases tax receipts. people have more income on way to pay tax. also it reduces spending for unemployment benefits and other things. it's separately the case that certain sorts of reductions in taxes or increases in government spending can spur economic
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growth. we have provided this committee and others with estimates of that. one shouldn't put the pieces together and assume that therefore some lower taxes or higher spending will boost the economy so much that that will raise tax revenue enough to pay for the entire extra fiscal cost. that's not the case. so there is some benefit to the federal budget. budgetary actions that spur the economy. but in almost every case not enough to pay for the direct cost of the actions. we have provided both in the appendix of this report and in the letter we wrote to congressm congressman holland in october, some were estimates of how improvements in performance would benefit the budget. we can have a talk with those more carefully if you'd like. >> i appreciate that. thank you very much. thank you, mr. chairman. >> i thank the senator. senator johnson?
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>> thank you, mr. director. thanks for your testimony. now, i agree with you if we're going to move in the direction of growth and we need a credible and specific plan and the first step is going to have the congress pad the budget and specifically the senate pass a budget. unfortunately we're starting a week late in terms of the timetable set out in the congressional budget act in 1974. the president is one week late in submitting the budget. i want to try to get our work done. with our budget, you know, proposals, submitted by april 1 in talking to chairman conrad, he said one of the problems that might hold us up in is the cbo's reestimation of the budget. can you give me a time line and give mes assurances you want to hold our work up here? >> well, the committee is holding our feet to the fire. we are starting a week late as
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you said. >> right. >> we will push along just as fast as we can. in conversations that we have had with the budget committees, we have said that we are aiming to release our march base line and our analysis of the president's budget by the middle of march. >> okay. >> whether we can keep to that depends on what turns up in the budget which we haven't seen and how hard it is to do the analysis of it. it depends on what congress needs of us. we made a tour in the senate and the house and pleaded for forbearance in doing estimates of other sorts of legislation over the next month and a half so we can focus on providing this new base line which is crucial four your legislative work. >> i appreciate that. i have a request, that we spoke about earlier. >> yes. >> i'm certainly concerned in general about the risks to the budget that you see. in addition to the base line, what are the risks?
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certainly from my standpoint we had this discussion. i'm highly concerned about the true cost of the healthcare law is. we had conversations about i believe credible evidence that this is underestimated in terms of the number of employees that will lose their employee sponsored care. can you give me an underdate on when -- an update on when we might have an reassessment of this? >> this outlook doesn't include a comprehensive outlook of the affordable care act. that will be part of the march base line. we get more health data this time of the year, so it's not in here. it will be in the march base line. so you'll see in that our assessment -- our best assessment at that point of the effects of the law. we're also separately working on analysis that is well along, but not finished, of the consequences for the budget if we are wrong in our assessment of the effects of the legislation. we're looking at a range of alternative parameter values of
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some of the crucial assumptions. and when we each -- each of those requires us to the a whole separate set set of assessments so it takes some time. as soon as that is done, we'll give that to the congress. a number of people have asked. >> i would encourage you to look a realistic worst case scenario because we're at a million person estimate. and i would argue far higher having bought healthcare and made the decisions. i encourage you to take a hard look at that. >> i understand. >> in terms of risk to the budget from my standpoint, cost of healthcare, interest rate risk, i'm looking at your interest rate assumptions. they certainly don't take into account should we hit the european style debt crisis. speaking of europe, i don't see, you know, anything -- i'm certainly concerned about what could happen of budgetary effects of the european contagion we had, we had an
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excellent hearing to that effect. have the cbo look at that as an alternative sanyo and then just growth protections. what is the last -- in the last 50 years what is the average growth rate of the u.s. economy? >> senator johnson, can i stop you on that point, because senator johnson said something i don't want to let this moment pass by without riveting the point. i don't want to kind of float by here. what he is saying is exactly correct with respect to yesterday's hearing and they suggested that we ask cbo to thattic a look -- to take a look at what we might expect if we have a further erosion in europe. and i think that is absolutely critical because it's one of the biggest risk factors that we face out there. i want to make sure this doesn't come off of senator johnson's time. so restore his time. >> it took about five minutes, by the way.
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well, thank you, senator conrad. that is important. so just getting back to my primary point, i listed four things. i would encourage cbo to take a look at what are significant risks? >> so as you know, senator, these projections that we make are fraught with uncertainty. and the uncertainty is very wide. particular projections of the receive it are projections of the difference between two very, very large numbers. one doesn't have to be off by very much in the projection of revenues or spending to be off by a large multiple of the projected deficit. we work very hard to have projections that are in the middle of the distribution, the possible outcomes. it's not our objective as described by the congress for us to deliver the worst case projection. but we do think about alternatives. we were not able in this report to illustrate the effects of the
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effects quantity datively. we didn't go from europe to what would happen, but it is conditioned on what we say is a shallow recession in the eurozone. i think that's consistent with the current consensus forecasts of what's going on in europe. the effects of europe on the u.s. economy, or the effects of the european financial implosion on the u.s. economy are of course very complicated. part of that you mentioned this earlier, if they're out of work, buying less, one place they'll buy less from is here. an important channel of transmission from their problems to us is through the financial system. we have had a number of conversations on this topic with our panel at economic advisers in the past several meetings. their view is really on the financial side. i think the current understanding is that u.s. financial institutions don't have a lot of direct exposure to
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the most troubled economies in europe. but as we saw in the financial crisis here, the danger comes not just from the one link away. it's two or three links away from this interconnected system. >> let me sneak one last point in here. currently a huge debate is really about the expiration of the bush tax cuts and differentiating them from the wealthy and the less well off. what is the effect of the bush tax expiration on the top $250,000 income earners? i mean, how many dollars is that per year over a ten-year window versus the rest of the tax cuts? >> i don't have a precise number, but roughly from the last time i have seen estimates on the joint committee of taxation, about one-fifth of total amount of revenue related to the extension of the 2001,
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2003 tax cuts is attributable to the tax rates and four-fifths -- >> put some numbers on that. >> so the total number we show in the outlook is $4.5 trillion for extending certain income tax and indexing the amt for inflation. so a fifth of $4.5 trillion is $900 billion. and some debt -- >> you say top income rate -- what's the cutoff? >> i don't remember the cutoff rates. they don't come from us. i don't have the numbers in hand. >> thank you, appreciate it. >> senator begich? >> thank you very much, thank you for being here. let me first ask -- it's interesting as i'm listening, i have been three years, kind of deja vu the debate we'll have. and the real question is how do
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we craft the right package and you have given some scenarios. and let me -- let me ask it in a question. do you believe to move this economy forward, get better revenue streams, reduce the deficit, create the right kind of mix, can you cut your way out of this? >> well -- >> if that's the only scenario that you have, that we're going to cut the budget. >> so our estimates say that if you were to have sharper cuts in spending, then those already embodied in current law. >> that means the automatic caps. >> we'd come back to you with a lower projection of economic growth in the next few years. depending on what happened to those policies over time, we might have different sorts of answers to the effect on the economy later in the decade. depends whether those policies were sustained.
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whether other policies might be made in the budget. but in the next few years, further cuts in spending beyond those in the budget control act, beyond those in current law, would lead to even weaker economic growth. >> would impact economic growth in a negative way? >> yes. >> let me ask you also, where we are today. and i actually went back and got the -- the testimony you have done the last two times, which is always interesting. you know, i'm sure you review it and you kind of go, did i really estimate that, maybe why? it's interesting and you have a pattern, and a trend which i kind of like. what i'm going to cite to you and that is when you do your base line budget outlooks. and i noted your comment you said these are benchmarks, not forecasts. you know the problem with that is of course when you see an article and it says cbo projects
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and they have an headline and says there are much dimmer forecasts. there's a clear difference between these. but in your documents and i'm going to use your words, you actually talk about forecasts. that's the phrase you use. so we have to help us help you make sure that the people understand there's a big difference between forecast and saying here's a benchmark. because the benchmark is just what it is based on the information you have at that time. and some assumptions. forecasts are using all kinds of other methods to get to that. when you read the document that says forecast, help us -- >> this is very hard, we use the word project or forecast, about 50,000 times. >> right. >> in those 150 pages. hard to say in every case the parenthetical of -- >> but it's a differentiation. this is information. in 2010 in your report, you said projected 2010 deficit,
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1.3 trillion, actual 1.29. and then last year you projected deficit for 2011, 1.48 trillion, actual deficit 1.29. now, there's variations. revenue went up, and we actually spent less. actually had a combination of the two that are moving us. so i have great hope as you project out this next year at 8.9 that it's going to be about a half a point less on the deficit -- the deficit is less than what you projected a little over a trillion dollars. your unemployment projection was always about a half a point off lower, which again i think is great because any time you overproject and it goes down is good news. so help me -- i mean, i'm assuming you take a much more middle conservative view on these numbers. so -- because we're a very
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unpredictable group here and you have to bank that. is that a fair -- >> well, we simply follow current law. with emake no -- we make no attempt to guess what you and your colleagues might do. for all we do in our projections we try to be in the middle of the distribution of possible outcomes. >> right. >> i don't -- we're not trying to be conservative. i'm not sure what that means all the time in this context. we see a range of possibilities. we want to give you a sense about what the middle of the distribution is. and i hope everybody understands that the distribution is very wide. the unemployment rate rose a little more, given the weakness of gdp earlier this this down turn and that has reversed. that's part of why the unemployment rate came in lower than we thought it would at the end of last year. >> in all three of the projections, you're half a point too high. i'm looking off your documents. 10.1 was a one-year projections
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and then -- that's good news. i'm just saying i like the way you project because my view is your trend line is the right trend line. i think that's a good point. that your projections may be higher than what may happen. that's my opinion. so i just want to put that. but -- >> i'm rooting for good news too. >> we're all rooting for good news. a couple quick things. have you done analysis -- there's discussion which i oppose and that's domestic bracks. going through the whole process of what could happen with domestic basis. i oppose it, i think there's a lot of folks, bipartisan who oppose it. can you -- have you done any analysis now or planning to in the future to give us an impact on what that might do to the economy if these are implemented over a period of time? or is it worth it? >> i'm not aware of any work we're doing on that specific
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topic. i mean, depends how much -- how many changes the government makes and how large the changes are. we have a large economy, even -- although as not as large as it could be at the moment. >> military is a sizable amount. >> it is a sizable amount. but what would be important would be the magnitude of changes that such a process could consider. also, what those changes were. i mean, the extent -- people don't have jobs in the military anywhere are or are you closing bases and moving them to other jobs? that's what we have to look at. >> somehow this materializes you have the capacity to analyze that, if there's enough information? >> we can look at some of that. >> there's a lot of variables in this? >> yeah. whether the macroeconomic anaturalsy is appropriate depends on the scale of it. we did an analysis on the way the military manages the arsenals which involves complicated public/private.
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and there were too many unknowns and we didn't have an ability we thought to do the sort of analysises we'll like to do. >> i do have questions regarding the natural resource development and oil and gas and what could mean, as my state, the chairman's state, has huge job and revenue stream for the federal government. i'll give it to you in writing so we can get more detail on what that impacts. >> i'll be happy to speak to that. >> senator portman? >> thank you, mr. chairman and dr. elmendorf, thank you for your testimony today and what you did in relationship to the so-called supercommittee which turned out not to be so super. we appreciate the work of your team, some of whom who are with you today. we did a lot of good analysis that i think can be helpful going forward. and in answer to the chairman's question and the ranking
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member's question and the confidence that people are looking for would be helped by having a plan. and part of that plan is what the supercommittee was not able to arrive at, but what we still have to do. the problem doesn't go away and part of that plan includes tax reform, not just tax increases and so in the context of that, let me ask you a couple of questions about the tax side. first, with regard to your report, this week which was very helpful, the alternative base line as you know shows that the tax extension would save jobs. you apparently looking at your testimony referred to that. basically, as i look at it, you're saying that under your table 2.2 which is the alternative base line that if you let the tax cuts expire it
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would play a significant role in having economic growth being reduced substantially and in essence, when you look at it because you're projecting unemployment rates of 8.9, 9.9% over the next few years, you are saying that with growth about three points higher in 2013 and unemployment a full percentage point lower with the tax cuts continuing, that the tax cuts really played a lead role in cost 1.5 million jobs. but the tax cuts are the largest part of that. can you comment on that? and also because you have calculating keeping the tax cuts which i think is helpful work, why didn't you incorporate the growth effects into the costs of keeping the tax cuts?
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clearly those growth -- that would lower the cost of keeping the tax cuts. did you think about including that as well as the growth impacts of keeping them? >> so two quick points, senator. the first as you know from this table, we talk about the economic effects in 2013 and the economic effects in 2022. you have highlighted the effects in 2013 in which case extending them and not implementing all of t cuts would provide a boost of the tax part of that alone is that it would add extending the provisions would add between half and 2.5 million full-time equivalent jobs in 2013. but 2022, the effects are quite different. this alternative scenario has significantly lower gnp than in the base line. and that's because the accumulating debt weighs on the economy more than the lower tax rates boost the economy in our estimates. on the matter of why we didn't
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do an estimate of the alternative fiscal scenario, i think that's basically -- the answer to that is a practical matter in the time we have to put this together, to do an entire second set on a different economic base line is just too complicated. we do as you know even better than i perhaps in your experience at omb, an awful lot of accounts in the federal government, so we look at each of those as part of our base lines. and on a single set of economic assumptions. then we try to illustrate the effects of alternatives, but not possible t that work again on a second set of economic assumptions. i think you're right to say that in 2013 that stronger economy would make the budget a little better off. also true in 2022 the weaker economy would make it worse off.
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so it's not the case we're systematically on one side, but illustrates the complexity of us doing the analysis and to the full analysis on two distinct economic base lines. >> well, i appreciate that. i do think it's a significant impact. you talking about 500,000 to 2.5 million jobs in 2013 alone. which is something that we ought to be cognizant of as we look at the tax cuts. i mean, in particular the pro growths one. the 2003 tax cuts might be a different kind and not all spending and not all tax cuts are equal. that's something that this committee needs to be looking at as the budget goes forward because it's a huge impact on jobs at a time when short term we need a boost. and clearly the tax cuts provide that. we talked earlier about times at which the spending was at 20% and times in which the taxes of
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a percentage of the gdp was at 18% and the chairman talked about the fact that we haven't had a balanced budget. and i would say that in 2007, again, i happen to be omd at the time and that's all we had. it was a 1.2% of the economy which many economists would view as minimal. so we have had times like that where we have had growth in the economy and we're able at 18.3% to achieve at least very close to a balanced budget and in fact, a way to get to the balance. the tax cuts are often blamed for if fiscal woes and it shows even if all of the current tax relief, 2001, 2003 continue, we get up to the 18.3% level, on the flip side the current policy base line shows us spending at 23.2% of gdp by 2022. which is about 3% above the
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historic average. so this notion as to what the issue is spending or tax, based on the historic average, the spending is going higher and the taxes are back to the historic level. so in a way the reason the deficit is going to be about 3% of gdp higher is because spending is about 3% of gdp higher than the historic average. and there's no long-term revenue decline at all. so again, i'm supportive of the tax reform, but i do think we need to take that into account. since my time is up, i look forward to your response maybe to other folks on that issue. but i think through tax reform you can generate more economic growth and therefore more revenue and that would be the better way to go rather than looking at raising taxes at a time of a tough economy. thank you, mr. chairman. >> thank you. senator whitehouse. >> thank you very much, chairman. dr. elmendorf, welcome back. >> thank you. >> first a comment and then a question.
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the comment is that as we face the issues the problem of our healthcare system remains enormous. you and i have discussed before hand the scoring problems of at cell -- of addressing delivery reform. i hope that as you, as an important voice in this debate go around and talk about this that you don't become the captive of your methodology and avoid discussing the potential benefits to our economy of delivery system reform, simply because it's not quantifiable by the metrics of your organization. i think that we have two separate questions here. one is what you can score and the other is what's the right thing to do? and i hope that you will point out as often as you can that solving the excessive cost in our healthcare system by improving the quality of care is a very good thing to do, even if omb can't score it.
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cbo can't score it. >> yes, senator. so of course, there's a tremendous distinction between things that we estimate and the effects we estimate and the set of issues that you and other of our elected leaders should take into account in making decisions. and i think it's universal view among analysts of the u.s. healthcare system that improvements in the delivery of healthcare are critical to our getting greater value for our dollar. and i would certainly not speak against that point at all. the harder question for us is which specific sorts of government policies that are brought to us to analyze would have what effects on delivery system. and those are -- we do a lot of work as you know to try to learn all we can to make the best estimates we can. but it's a very uncertain business. we released an issue brief reviewing some of the recent
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medicare demonstration projects coordinating the delivery of care and on paying providers not just for the quantity of service, but paying them for doing a good job. so we're studying that literature very carefully and talking with practitioners all the time. >> let me switch to a different topic, the so-called buffett rule. i have been working on a stat e statute -- a bill for a while now that we have just filed. there's obviously a direct revenue effect when to use one of the examples the 400 highest income earners in the country who earned on average over a quarter of a billion dollars each during that reported year turned out to have paid net 18.2% in -- on average in total federal taxes and, you know, you look at what middle income
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people pay and it's very often higher than that. so there's an upside down quality for certain people in our supposedly progressive tax code, and when you bring them up to the closer to the nominal level with a minimum the way the buffett rule would, obviously that will create additional revenues for the government that can be used to address the deficit and other issues. we have a request in to the joint committee on taxation right now on that. we'll find out what that number is. the argument against it is that the foiks -- the folks who are involved in the hedge funds and so forth are such magnificent job creators that we should indulge the favored treatment in the tax code in that job creation that they create. i'm wondering if that is an issue that you look at. if that's an off set of some kind that is
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